By Virusha Subban, Partner Specialising in Trade and Excise, and Cameron Jeffrey, Candidate Attorney, Baker McKenzie Johannesburg

 For decades, progress towards the integration of world economies and the establishment of a global economic market has been a feature of the times. Many nations have embraced liberal trade and investment regimes in an effort to expand their economies and exploit global markets. Opening up national markets to foreign competition has resulted in the increased integration of markets for goods, services and foreign direct investment (FDI). Overall, globalisation has contributed to economic growth in Africa, and as the continent gears up for its post-pandemic recovery, many African countries will be looking at ways to align themselves more closely with their major trading partners, so that they can successfully attract foreign investment.

 According to recent comments by Patricia de Lille, South Africa’s Minister of Public Works and Infrastructure, the new Expropriation Bill of 2020 (the Bill) brings South Africa in line with international legislative standards on the issue of justice and equity in land ownership. This is intended to provide legal certainty for the country’s major trade and investment partners, as the Bill aligns South Africa with similar global policies on land reform. The new Bill, according to Minister de Lille, was never intended to scare off investors, but rather to assure them that the country is addressing crucial land reform in a similar way to how it has been addressed by its key trading partners.

 These statements by Minister de Lille, however, do not align with the general reaction to the Bill when it was first announced. There was much ado about the prospect of “expropriation without compensation” when it was first proposed that the South African Constitution be amended to make it easier to do so in late 2018. To date, property owners still shudder at the use of the phrase, as the fear of answering the door to an eviction notice lingers in the minds of many. However, while the Expropriation Bill of 2020 (the Bill) does allow for expropriation of property against nil compensation, it is far more amicable to South African property rights than is commonly believed.

 Importantly, the Bill is not an amendment of the property clause in section 25 of the Constitution. Rather, it gives effect to the clause by serving as the legislation contemplated therein. Its focus is land reform, but under the auspices of due process, reasonableness and agreement. In terms section 2(3) of the Bill, in the absence of urgency, a power to expropriate may not be exercised unless the expropriator has tried unsuccessfully to reach an agreement with the property owner to acquire the property on reasonable terms. In other words, there should always be an agreement between an owner and the expropriator before any property changes hands, and only in exceptional circumstances should it be otherwise.

 How it works

There are a number of hurdles to expropriation in the Bill. First, the Minister of Public Works and Infrastructure (the Minister) must be satisfied that it is in the public interest to do so, or that it is for a public purpose. Where an organ of state intends to expropriate property, it bears the burden of satisfying the Minister to this effect (Step 1). Next, the expropriator must determine the suitability of the property for its intended purpose (Step 2). This involves investigating and valuing the property, making use of appropriately qualified personnel. Thereafter, the Bill envisages a process of notice and negotiation, whereby the authority must serve a notice of intention to expropriate on the property owner and any other registered right-holders in the property. In effect, the notice must explain the implications of expropriation and the owner’s rights in the process; it must call upon the property owner to make a claim for compensation he/she believes to be just and equitable, and it must inform the owner of her right to object (Step 3).

 The authority must consider the compensation claim and any objections, and must either accept the amount claimed or make a counteroffer (Step 4). Should the property owner reject the counteroffer, it then falls into the hands of the authority whether to expropriate, extend negotiations, or abandon the matter (Step 5). If expropriation is to go ahead, a notice of expropriation must be served on the owner and all related right-holders (Step 6), outlining, inter alia, the reason for expropriation, the amount of compensation, and a reminder that if the amount is disputed, the owner may institute – or request the authority to institute – proceedings in a competent court to hear the dispute.

 Compensation (Step 7)

The amount of compensation to be paid to the owner “must be just and equitable reflecting an equitable balance between the public interest and [the owner’s interests]”. The factors to be considered include the property’s market value, current use, and the purpose of the expropriation. Yes, the Bill provides that it may be just and equitable for compensation to be nil, but the factors for consideration in this light are fair. Nil compensation may be possible, all things considered, where: (i) the land is not being used, and the owners purpose for the land is not to develop it in view of generating an income, but rather to benefit from its appreciation; (ii) where the land is state-owned and not being used for its core purposes; (iii) where the owner has abandoned the land; (iv) where the market value of the land is less than the value of state subsidy or investment therein; and (v) where the property poses a health or safety risk for other persons or property. It is clear from this list that a functional property is unlikely to be taken from its owner without due compensation.

 In any event, section 21 of the Bill makes provision for all disputes to be referred to mediation, and absent a resolution, it provides for the determination of disputes by a court. Owners can draw peace of mind from this provision, as it not only means an owner has protection against what might be unfair to him/her, but an expropriator would be loath to neglect due application of steps 1–7 for the sake of its own time and resources.

 Conclusion

The Bill doesn’t make it easy to expropriate property, nor does it appear to be aimed at expropriation without compensation. It is theoretically possible for expropriation to occur at a nil compensation, but procedural fairness and the right for all disputes to be heard before a court are protections afforded to property owners. The Bill makes it clear how expropriation is likely to play out. It is balanced, recognizing the need for land reform but also the importance of procedural fairness, fair resolution of disputes, consensus between parties and the right to own property. Importantly, the property owner always has a say, as each step in the process needs to be duly heeded by the expropriator, and there is always a right for the matter to be disputed.

 Although it has generally not been well received, once it becomes law it is hoped that its intention to bring South Africa in line with global land reform standards will provide more certainty for foreign traders thinking of entering new markets.

Underlying resilience signals market is down but not out 

Johannesburg, 29 April 2021 – Baker McKenzie’s latest report – New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding – analyzes new data from IJ Global that shows the state of the African infrastructure market, and how the major global players’ approach infrastructure lending on the continent is changing. While the data shows a decline in the value of infrastructure lending, the region is known for its resilience and it is expected that as economies recover, new types of financing will be unlocked.

The data

The report’s data shows that multilateral and bilateral lending into Africa has declined – with investment levels falling successively in 2019 and 2020 compared to peak levels seen after the financial crisis. In 2019, bilateral and multilateral lending into Africa amounted to USD 55 billion, which drops to USD 31 billion in 2020. Over the last six years, the decline is significant – deal values dropped from USD 100 billion in 2014 to USD 31 billion in 2020.

This slowdown in infrastructure investment was attributable to a number of factors, including the pandemic. Economic contraction has affected Nigeria and South Africa, meaning that the region’s largest economies have not been feeding in growth as in previous years. However, market fundamentals signal a region with underlying resilience and, as the global economy recovers, finance will be unlocked. There are already positive indicators of forthcoming investment. Commodity prices are rising and landmark deals are returning. For example, mining multinational Sibanye-Stillwater recently committed ZAR 6.3 billion to South African infrastructure projects.

The data also shows that deal tenor is contracting – from a high of 17 years in 2019 to 13 years in 2020. However, the long-term nature of infrastructure projects means that international partners have made lasting commitments to the region, which are unlikely to be abandoned despite immediate pressure on national finances.

China

Surprisingly, given the pandemic, the data shows that lending by Chinese banks into energy and infrastructure projects in Sub-Saharan Africa saw a small uplift in 2020, although deal values are well below their 2017 peak. In 2017, Chinese banks lent USD 11 billion to African infrastructure projects, which decreased to USD 4.5 billion in 2018, USD 2.8 billion in 2019 and USD 3.3 billion in 2020.

Simon Leung, Partner, Baker McKenzie Hong Kong, explains, “There has been a slowdown in the number of infrastructure deals from China. In the short-term, we expect to see more targeted lending – fewer projects of a higher quality using sophisticated structures – and new finance options, such as factoring, used to deploy Chinese capital into the region.”

International players

It is also clear that other international players have the region in their sights, with key political changes in the United States (US) and United Kingdom (UK) likely to see capital flow into Africa.

Michael Foundethakis, Partner and Global Head of Projects and Trade & Export Finance, Baker McKenzie Paris, notes, “The US hasn’t kept pace with Chinese lending into Africa. The recent change in administration is likely to renew focus on impact-building and financing strategic long-term projects in the region, but bankability and risk-sharing remain a priority for US lenders.”

Lodewyk Meyer, Partner, Baker McKenzie Johannesburg, notes further that, “The infrastructure funding gap is so large and of such strategic importance, it remains necessary to encourage international investment to fill it. African DFIs are very good at collaborating and I am encouraged by the actions of the new US administration, UK government and New Development Bank, in particular in their willingness to work with regional institutions in this regard. The UK is making a strong play for influence, investment and trade with Africa post-Brexit. Further to key summits held in 2020 and 2021, there are signs that finance will be redirected into Africa.”

Commercial banks

The report points to infrastructure gaps in energy provision, internet access and transportation that have resulted in an urgent imperative to identify and enable new sources of finance outside traditional lenders and international partners. Further to the expected return of multilateral and bilateral lending, there is room for evolution to bridge the funding-opportunity gap.

The report shows, however, that this vacuum is unlikely to be filled by commercial banks, noting that in 2020, just 84 projects were supported by commercial bank finance and their involvement in Development Finance Institution (DFI) and Export Credit Agency (ECA) deals continues on a downward trend.

Luka Lightfoot, Partner, Baker McKenzie London, explains, “Banks are likely to be focusing on managing liquidity, with lenders deploying capital selectively.”

DFIs and new financing solutions

Instead, local and regional banks, specialist infrastructure funds and private equity and debt are stepping in to collaborate with DFIs and access returns. This outlines the deepening DFI involvement in the infrastructure ecosystem at large, with DFIs increasingly anchoring the infrastructure ecosystem in Africa – serving a critical function for project finance as investment facilitator and a check on capital. This is because they can shoulder political risk and access government protections in a way that others can’t, enter markets others can’t and are uniquely capable of facilitating long-term lending.

The report explains how the amount of capital needed to fill the infrastructure gap is significant and DFIs can’t bridge it alone. Private equity, debt finance and specialist infrastructure funds are primed to enter the market, and multi-finance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.

Lightfoot comments, “We expect to see an increase in non-bank activity in Africa in future as a result of new credit mitigation products come to market. We have seen an increase in appetite from established market participants, such as development banks, to create products that are not tied to existing arrangements that may have limited the type of finance available.”

A new era

Lamyaa Gadelhak, Partner and Co-head of Banking, Finance and Projects at Helmy, Hamza & Partners, Baker McKenzie Cairo,adds, “The pandemic represents the end of an era and the start of a new one. There will be a re-prioritization of funds and strategy through this lens. I expect to see more investments in the healthcare industry and connected infrastructure, as well as water related projects, to be top priority. We should also consider the impact of other factors aside from the pandemic. For instance, the African Continental Free Trade Agreement and what it needs to translate into increased cross-regional trends. I would expect development of transportation and logistics infrastructure focused projects to enable the acceleration of on-ground execution of intra-African trade.”

Emeka Chinwuba, Partner, Baker McKenzie New York, and Banking, Finance & Major Projects Group member, concludes, “Last year was a relatively difficult year across jurisdictions and for investors – with considerable uncertainty and change in the ways in which we do business. Shutdowns had a depressant effect on the infrastructure market, as deals in the pipeline were delayed and projects halted as a result of COVID-19. Full vaccination in Africa is still quite a long way off comparatively, so we can’t expect a full and fast return to normal activity. But we’ve reached the bottom, and the only way is up.”

With the growth of economies across Africa, competition law has remained one of the key drivers for effective market participation, consumer protection and fair business practices. However, the global pandemic introduced new challenges for competition authorities in Africa and abroad, with each enforcer pursuing the most beneficial enforcement method for its national or regional jurisdiction.

According to Lerisha Naidu, Partner in Baker McKenzie’s Competition & Antitrust Practice in Johannesburg, “These efforts were aimed at curbing the persistence of unjustified price hikes, anticompetitive cooperation between competitors and other harmful business practices that sought to undermine competition. In addition to the urgent responses to the unprecedented impacts of the global COVID-19 crisis, competition authorities in countries and regions across Africa continued to introduce new laws and amend existing legislation as a sign of the rapidly increasing prioritisation of competition law enforcement on the continent.”

Naidu was part of a team from Baker McKenzie to produce a comprehensive guide covering the latest developments in African competition law in 25 countries across the continent. The firm’s Competition and Antitrust teams in Cairo, Casablanca, Johannesburg, Paris and Washington DC, recently collaborated with competition lawyers from African Relationship Firms across the continent, to produce a comprehensive guide covering the latest developments in African competition law. The Guide – An Overview of Competition & Antitrust Regulations and Developments in Africa: 2021 – covers competition law developments at a domestic level, itemising relevant amendments and approaches of competition authorities on topical issues, including the country-specific competition law responses to the impact of COVID-19.

Baker McKenzie’s EMEA Head of Competition & Antitrust, Dr Nicolas Kredel, noted  “Africa is an important focus for our global Firm. The continent has an unparalleled diversity and a consummate capacity to reinvent itself, as well as being in a privileged position to develop its future without compromising its sustainability. Post-pandemic, we believe there will be plenty of investment opportunities on the continent, with competition law fulfilling the essential role of balancing the urgent need for investment on the one hand, with the responsibility to protect the more vulnerable sectors of African economies from predatory acquisitions, on the other. As such, competition authorities are expected to continue to increase cooperation to effectively enforce competitive practices.”

In addition to country-specific regulation outlined in the Guide, information is also provided on how a number of regional competition regulators in Africa are impacting domestic markets. Such regulators include the West African Economic Monetary Union (WAEMU), the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of West African States (ECOWAS) and the Economic and Monetary Community of Central Africa (CEMAC). While not a regional regulator, the African Competition Forum, an association of African competition agencies, promotes competition policy awareness in Africa and the adoption of competition policies and laws. The Forum also facilitates regular contact between authorities, creating a platform for the sharing of best practice and domestic competition trends.

COVID-19 responses

According to the Guide, competition authorities across the continent had already established strategies for maintaining competition and limiting instances of customer exploitation in their respective countries by early March 2020.

“Competition authorities in Kenya, Malawi, Mauritius, Namibia, Nigeria and South Africa reacted quickly to pandemic impacts by introducing new guidelines and regulations,” noted Angelo Tzarevski, a senior associate in Baker McKenzie’s Competition Practice in Johannesburg.

Amendments to existing laws

The Guide also details how various jurisdictions have recently strengthened their competition law regimes by way of amendments to the existing legislation or by introducing entirely new laws to facilitate their enforcement efforts.

“For example, Botswana’s Competition Act came into force at the end of 2018.  Kenya recently introduced a host of new laws, guidelines and rules that relate to buyer power, the valuation of assets in merger transactions, block exemption of certain mergers from notification, merger thresholds and filing fees, market definition, and new guidelines for the determination of administrative penalties. Ghana’s Draft Competition Bill is currently before parliament awaiting passage into law, and Egypt and Mauritius amended their competition legislation by introducing or giving effect to new provisions and regulations. In South Africa, price discrimination and buyer power provisions that were previously introduced by the Competition Amendment Act have since come into effect. Regulations were also issued to facilitate the interpretation and application of these provisions,” said Tzarevski.

“African competition law continues to develop at a rapid pace, boosted by the implementation of protective strategies necessary during the peak of the pandemic. An increasing number of jurisdictions have adopted laws and regulations, established authorities, secured membership to regional antitrust regimes and ramped-up enforcement of suspected violations of prevailing competition laws at both domestic and regional levels. As such, organisations transacting across borders in Africa must ensure they are compliant with a myriad of local and intersecting regional competition laws to avoid facing the wrath of the continent’s competition authorities. Access to standardised, cross-border information on the latest competition law developments in Africa has become essential for those transacting in the region,” added Naidu.